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Friday, April 07, 2017

Oracle Looking to Buy Accenture? Stranger Things Have Happened.

The Registerreported that Oracle may be exploring the "feasibility of buying multi-billion dollar consultancy Accenture."

To summarize the numbers involved here, Oracle had FY16 revenues of $37 billion, net income of $8.9 billion, and a market cap of $180 billion.

On the other hand, Accenture had FY16 revenues of US$34.8 billion, net income of $4.1 billion, and a market cap of $77 billion.

Some questions that come to mind:

Why?Oracle buying NetSuite in 2016 made sense. Oracle buying Salesforce would make even more sense. Oracle buying a management consulting and professional services company, and that too one with more than a quarter million employees, on the face of it, makes little sense. Would it help Oracle leapfrog Amazon's AWS cloud business? Would it help Oracle go after a new market segment? The answers are not clear, at all.

Who would be in charge of this combined entity? Both have similar revenues, though Accenture has a market cap that is less than half Oracle's and a workforce that is roughly three times Oracle's. The cultural meshing itself would prove to be a challenge. Mark Hurd, one of two CEOs of Oracle (the other CEO is Safra Catz, a former investment banker), has the experience running a large, heterogeneous organization. Prior to his stint at Oracle, he was credited with making the HP and Compaq merger work. At Oracle, however, he has not run software product development, which has been run by Thomas Kurian, and who reports to Larry Ellison, and not Hurd. A merger between Oracle and Accenture would place an even greater emphasis on synergies between Oracle's software division and Accenture's consulting business.

Oracle would need to spend close to $100 billion to buy Accenture, if it does. How would it finance it, even assuming it spends all its $68 billion in cash to do so? Keep in mind that its largest acquisition was in the range of $10 billion. The financial engineering would be staggering. It helps that it has a former investment banker as one of two CEOs.

Will Oracle make Accenture focus on the Oracle red stack of software products and applications - both on-premise and in the cloud? If yes, it would need a much smaller-sized workforce than Accenture has. That in turn would diminish the value of Accenture to Oracle, and make the likely sticker price of $100 billion look even costlier.

Is Oracle looking to become the IBM of the twenty-first century? It's certainly been a public ambition of Larry Ellison. In 2009, he said he wanted to pattern Oracle after Thomas Watson Jr's IBM, "combining both hardware and software systems." If Oracle keeps Accenture as a business unit free to pursue non-Oracle deals, does it mean Oracle is keen on morphing into a modern-day avatar of IBM and IBM Global Services, offering hardware, software, and professional services - all under one red, roof?

Is Oracle serious about such a merger? An acquisition of this size seems more conjecture than in the realms of possibility, at least as of now. One is reminded of the time in 2003 when Microsoft explored the possibility of buying SAP. Those discussions went nowhere, and the idea was dropped. Combining two behemoths is no easy task, even for a company like Oracle, that has stitched together almost 50 acquisitions in just the last five years.

If such an acquisition did go through, there would likely be few anti-trust concerns. That's a big "if".